Internet Risk Quantification for Insurance Pricing
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Solution Overview
Problem
The insurance industry and commercial finance lack a systematic method to quantify and manage Internet operational risks, leading to uncertainty in pricing insurance premiums and bonds, as current actuarial tables and matrices are not available for Internet perils or performance anomalies, hindering the development of rational risk-transfer instruments.
Innovation Solution
A method that correlates input information on internetwork performance with financial entity operations, translates this data into operational risks, and combines it with secondary external information to estimate the spread and effects of anomalies, enabling the creation of probability models for insurers and bond underwriters to price insurance policies and bonds.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Ease of manufacture
If traditional actuarial tables and matrices are used for Internet risk pricing, then pricing can be performed using established methods, but the methods are inadequate because no such tables exist for Internet perils and performance anomalies
Solution Approach 1:
The patent performs preliminary actions by collecting and analyzing historical Internet performance data, security incident data, and network topology information before insurance pricing is needed. This pre-processing creates a foundation of actuarial tables and risk models specific to Internet perils, enabling reliable pricing when actually needed without relying on traditional methods that don't apply to cyber risks.
Solution Approach 2:
The patent introduces an intermediary layer of Internet-specific risk assessment models and actuarial tables that bridge the gap between traditional insurance pricing methods and the unique characteristics of Internet perils. This intermediary translation layer converts raw network performance data and security incident data into standardized risk metrics that can be used for pricing, making traditional pricing capabilities applicable to cyber risks.
2Measurement precision
If comprehensive network performance data is collected and analyzed, then risk quantification accuracy improves, but the complexity of the system increases due to the need to process diverse data sources and translate them into operational risks
Solution Approach 1:
The patent segments the complex data processing task into distinct modules: network performance data collection, security incident data collection, data correlation and analysis, risk model application, and pricing calculation. Each module handles a specific aspect of the data processing pipeline, making the overall system more manageable and maintainable while achieving comprehensive risk assessment through the integration of these segmented components.
Data Source
AI summary
The invention broadly comprises a method for determining financial loss related to performance of an internetwork. The method correlates input information regarding performance of an internetwork to operations of a financial entity underwriting insurance premiums and bonds and translates the correlated input information into at least one operational risk for the entity. In some aspects, the internetwork is the Internet. The method gathers secondary external information other than directly from the internetwork, correlates the input and secondary external information, and translates the correlated input and secondary external information into at least one operational risk for the entity. For at least one subset and one peril, the method determines a spread in time and space of effects of the at least one anomaly and peril on the internetwork and on the at least one subset.